Why Indians Absolutely Need a Life Insurance Policy

Life insurance policies provide protection from the risk of the untimely death of the insured, usually the earning member of the family. Thus, they are a crucial element of financial planning. In addition to the benefit of protection against risk, life insurance policies also provide tax benefits, not only on the premium paid, but also on the benefit received in case of the death of the insured.

Leading Causes of Death in India

As per data given in the report ‘Vital Statistics of India’, there were 5.7 million registered deaths in India in 2010. According to the ‘Report on the Causes of Death in India 2001-2003’ prepared by the Office of the Registrar General of India, giving the results of the demographic survey known as the Sample Registration System, non-communicable diseases are the leading cause of death in India, accounting for 42% of all deaths. Communicable diseases, maternal, perinatal and nutritional are the reason for another 38% of the deaths. Injuries and ill-defined causes account for 10% of deaths each. Overall, the leading cause of death is cardiovascular disease (19%), followed by respiratory illnesses, which account for 9% of deaths. Cardiovascular diseases account for 25% of all deaths of those in the 25-69 age group, and are the leading causes of death for both males and females in this age group.

Reasons for High Proportion of Deaths from Disease

Cardiovascular illnesses account for the major share of death in India. Data from the World Health Organisation shows the estimated 2008 prevalence for various common risk factors for cardiovascular diseases, as follows.

Raised blood pressure- 32.5% (male and female combined)

Raised cholesterol- 27.1%

Physical inactivity- 14%

Daily tobacco smoking- 13.9%

Overweight- 11%

Raised blood glucose- 10%

The presence of these risk factors contributes to not only cardiovascular diseases, but also to diabetes, which causes 2% of all deaths in India. In addition, the poor have very limited access to healthcare, especially in rural areas. This leads to many preventable deaths from communicable diseases, such as diarrhea, malaria, tuberculosis, and so on. Another cause of death in India is nutritional deficiencies, which again stems from poverty.

Deaths from Injuries, Especially Road Accidents

According to an article in livemint.com, road accidents killed 207,551 people in India in 2014, as per estimates by the World Health Organization. Death from injuries, including road accidents, are the reason for 10% of all deaths in India. Road accidents occur due to poor enforcement of traffic regulations, poor road conditions, and reckless driving behavior.

The Need for Life Insurance

It is very important to take a life insurance policy, so as to protect one’s family against the risk of untimely death of the earning member of the family. As per the 2014-15 Annual Report of the Insurance Regulatory and Development Authority of India, the 24 life insurance companies registered in India had a premium income of Rs 328,101 crores in 2014-15, up slightly from the Rs 314,301 crores collected in 2013-14. Renewal premium accounted for 65% of all premiums collected in 2014-15; the rest were premiums on new policies. Insurance penetration (the ratio of premium to GDP) fell from 3.1% in 2013-14 to 2.7% in 2014-15 in India. Insurance penetration in India remains low, compared to the insurance penetration of 16% in Taiwan and close to 14% in Hong Kong. The claim settlement ratio, or the ratio of claims settled to the total number of claims made, reached 98.2% for Life Insurance Company of India (LIC), the only public sector company in the life insurance sector. The ratio for the private sector was 89.4%, an improvement of the 88.31% in 2013-14.

Tax Benefits of Life Insurance

There are tax benefits associated with taking life insurance policies, according to an article on moneycontrol.com. Premiums paid can be claimed as a deduction under Section 80 C of the income tax act, 1956 within an overall limit of Rs 150,000 per year, along with other eligible items. If the amount paid towards the life insurance premium exceeds 10% of the amount of the sum assured, the deduction can only be taken up to 10% of the sum assured. In addition, the benefit received from a life insurance policy is exempt from tax, as long as the premiums paid did not exceed 10% of the sum assured in any year.

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